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Critical Success Factors of Technological Alliances in Complex

Product and Systems (CoPS)

Abstract Strategic alliances refer to inter firm collaboration aimed at achieving a firm's strategic objectives. Although the number of alliances has increased rapidly over the past ten years, the success rates of alliances have remained low. Failure rates of 50–60% are not uncommon. Complex product and systems (CoPS) are often produced in multi-firm alliances. Complex alliances are more likely to fail, so this study, based on literature review, aims to identify critical success factors (CSF) of CoPS technological alliances. After identifying critical success factors of alliances in general, we examine CoPS characteristics effect on those factors. Indentified factors are: Trust, Top management support, Communication, Complementary resources, Alliance management capability, precise definition of rights and duties, learning climate, and Partnering experience.

1. Introduction 1-1- Preface

In many industries, the use of alliances is an important strategy to expand market coverage, reduce risks, learn new skills and technologies, and facilitate resource sharing. Broadly, strategic alliances refer to inter firm collaboration aimed at achieving a firm's strategic objectives. (Yoshino & Rangan, 1995) Although the number of alliances has increased rapidly over the past ten years, the success rates of alliances have remained low. Failure rates of 50–60% are not uncommon. (DE MAN, 2005) It is believed that complex alliances are more likely to fail (Park & Ungson, 2001)

One of complex type of alliances is alliance for creating complex product and systems. Complex product and systems abbreviated as CoPS can be defined as high cost, technology-intensive, customized, capital goods, systems, networks, control units, software packages, constructs and services. (Hobday M. , The project-based organisation: an ideal form for managing complex products and systems?, 2000) They are often produced in multi-firm alliances. (Prencipe & Fredrik, 2001)

Technology alliance that is the most frequent rationale for forming alliance (Badger & Mullilligan, 2002) seems the major reason for CoPS alliances.

However technological alliances are still a neglected area of study in CoPS and as mentioned above complex alliances like alliances for creating CoPS are more likely to fail. Thus this study, based on literature review, aims to identify critical success factors (CSF) of CoPS technological alliances.

We assume that CoPS has the special characteristics that affect technological alliances

success.

1-2- Structure of the article This paper organized as follows: in part two; we will discuss main concepts including CoPS concept, technological alliance concept and the concept of critical success factors. In part three, we present our comparison table on CSF of alliances. For development of a comparison table, we studied 6 articles on alliance critical success factors. Then we prepare the table and CSF of each article was placed on one column.

In Part four, we identified the most important Cops characteristics that may relate to Cops alliance. Finally we brought CSF and COPs characteristics against each other and CSF‘s that are more related to COPs characteristics were selected.

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1-3- Methodology

As mentioned before this article is based on reviewing the literature. The searched key word include: Alliance, alliance success, CSF of alliance, alliance performance, alliance termination, and CoPS. Also we select 4 databases for search: Elsevier science direct, EBSCO, IEEE, and Proquest. Also we do not include any time limit (year) for finding articles in our searches.

2- Main Concepts 2-1- CoPS

2-1-1- Definition and background of CoPS

The concept of cops was introduced and treated as an independent class of economic activity in the mid 1990s (Hobday M. , Complex system Vs mass production indusrties: a new innovation research agenda (second deraft).Paper prepared for CENTRIM/SPRU Project on Complex Product Systems, 1995). Complex product and systems (CoPS) can be defined as high cost, technology and software intensive products, systems and networks which are manufactured in one-off projects or small batches (Hobday M. , Product complexity, innovation and industrial organization, 1998) (Heighes, 1997). CoPS play a vital role in the modern economy and society. In some respects CoPS form the technological backbone of the modern economy (Hobday & Rush, Technology Management in Complex Product Systems (CoPS): Ten Questions Answered., 1999). CoPS are capital-, engineering and IT-intensive, business-to-business products, networks, constructs and systems (Prencipe & Fredrik, 2001).

The earlier idea that a generic category of industrial products can be classified as CoPS draws on studies of industrial organization, large technical systems, and the military systems; as well as work on complexity of systems and project management literature (Hobday M. , Product complexity, innovation and industrial organization, 1998).CoPS as an analytical category has been actively promoted by Hobday and his colleagues, since the mid or late-80s, as a distinctive research category, at least for the purposes of research in innovation, project management, company strategy, and government policy (Yeo, 2006). CoPS are the high-technology, business-to-business capital goods used to produce goods and services for consumers and producers (Hobday M. , The project-based organisation: an ideal form for managing complex products and systems?, 2000)and usually embody large numbers of tailored, components, produced by temporary coalitions of firms using one-off or very small batch processes. (Barlow, 2000) CoPS are made up of many customized, interconnected control units, sub-systems and components. As a result, the degree of system hierarchy is comparatively high (Yeo, 2006)

2-1-2- CoPS characteristics

CoPS are produced in one-off projects or small batches (Hobday M. , Product complexity, innovation and industrial organization, 1998) and are generally characterized by high levels of user involvement a multi-firm, project-based innovation environment and heavily regulated, bureaucratically administered. (Nightingale, 2000)Their unit cost and financial scale is usually large (Yeo, 2006) and they have high levels of uncertainty. They also characterized by a large variation in the success of development and showing high levels of failure. (Nightingale, 2000) Product complexity is one of significant characteristics in CoPS context. One dimension of CoPS complexity is the variety of distinct knowledge and skill bases which need to be integrated into the final product. (Yeo, 2006) Hobday puts forward various dimensions of product complexity, including numbers of components, the degree of customization of both system and components, the number of design choices, elaborateness of system

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architectures, the range, and depth of knowledge and skill inputs required, and the variety of materials and information inputs. (Hobday M. , Product complexity, innovation and industrial organization, 1998)

Other key concept is innovation. Because CoPS are highly customized, engineering-in-tensive goods which often require several producers to work together simultaneously, the dynamics of innovation in CoPS are likely to differ from mass produced commodity goods. (Hobday M. , Product complexity, innovation and industrial organization, 1998) CoPS usually involve a certain degree of technological novelty and innovation. (Yeo, 2006)

Some studies proposes that the Project Based Organization is a natural organizational form for CoPS producers because this form is ideally suited for managing increasing product complexity, fast changing markets, cross-functional business expertise, customer-focused innovation and market, and technological uncertainty. (Hobday M. , The project-based organisation: an ideal form for managing complex products and systems?, 2000)

Hobday (Hobday M. , Product complexity, innovation and industrial organization, 1998) proposed six dimensions that distinguish CoPS from simple products. These include product characteristics, production characteristics, innovation process, competitive strategies and innovation coordination, industrial coordination and evolution, and market characteristics.

2-1-3- Technological alliance

Technology alliances are a subset of strategic alliances (Awazu, 2006) (Miazaki & Kimija, 2000) that continue to rise at an ever increasing rate. (Dyer, Kale, & Singh, 2004) The Alliance Agreement set out the principles by which the parties would work together and aligned them financially to the overall success of the project and included a gain sharing mechanism (Barlow, 2000)

A strategic technology alliance can be understood as long-term, continuous, and mutually beneficial vertical nonequity relationship where confidential information on future plans and visions is shared openly and proactively in order to help both companies to focus their resources to the right direction. (Vilkamo & Keil, 2003)

Since the companies commit to each other and thus become more interdependent, they typically also strive to align strategies and support each other’s development in order to maximize the outcome of the relationship. Another typical characteristic is that the risks of cooperation are shared for example by sharing the development costs or other investments. Partners share their resources, knowledge and capabilities with the objective of enhancing the competitive position of each partner. (Spekman, Forbes, Isabella, & MacAvoy, 1998) In strategic technology alliances partners particularly cooperate closely in the field of research and technology development.

The underlying motivation to enter interfirm cooperation of any form is that companies can together achieve such targets that they would not be able to achieve alone (Madhok & Tallman, 1998) Cooperation is seen as a mechanism to understand and cope with uncertainty (Spekman, Forbes, Isabella, & MacAvoy, 1998).

2-2- The concept of Critical Success Factors 2-2-1- CSF definition

By definition, “critical” factors of success/ failure are those factors that determine the success or failure of an alliance. (Hoffmann & Schlosser, 2001) .this study identified the CSFs by comparing the CSFs of six related articles about alliance success.

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3- CSF of technological alliances

Comparison table of CSF of technological alliances

Researchers have pointed out to the importance of various factors such as trust, Top management support, communication, Effective coordination, Team building, Partnering experience, Learning climate, Long term commitment, etc that can play a significant role in alliance success.

In this part we present our comparison table on CSF of alliances. For development of a general framework, we studied 6 articles on alliance critical success factors. Then CSFs of articles were placed on left hand column of table. The upper row indicates the name of the authors. The star in each table cell shows the CSF that mentioned by one of six authors. (See table 1

Table1. CSF of alliance based on literature review

ID factor Wittman

n (2008) Whipple(2000)

cheng (2002)

Hoffman(2001)

Mc Cutchen(2008)

De Man (2005)

1 trust

2 Top management support

3 communication

4 Complementary resources

5 Contributing specific strength

6 Partner compatibility

7 Alliance management capability 8 Clear goals

9 Effective coordination

10 Team building

11 Partnering agreement

12 Precise definition of rights and duties

13 Joint problem solving

14 Long term commitment

15 Learning climate

16 Partnering experience 17 Awareness of time requirement

18 Equal contribution

19 Conflict resolution technique

After preparing the preliminary table, we exclude factors that are seen only by one

author (factors 9, 10, 13,14,17,18, and19) (see table 2)

Table 2. the more frequent CSF of alliance based on literature review

ID factor Wittmann (2008)

Whipple(2000)

cheng (2002)

Hoffman(2001)

Mc Cutchen(2008)

De Man (2005)

1 trust

2 Top management support

3 communication

5

4 Complementary resources

7 Alliance management capability 8 Clear goals

11 Partnering agreement

12 Precise definition of rights and duties

15 Learning climate

16 Partnering experience

Also we aggregate clear goals (factor 8), Partnering agreement (factor11), and precise definition of rights and duties (factor 12), in single factor named precise definition of rights and duties.

After final review these factors are identified as followings: 1. Trust 2. Top management support 3. Communication 4. Complementary resources 5. Alliance management capability 6. Precise definition of rights and duties 7. Learning climate 8. Partnering experience These factors are the most viewed CSFs on technological alliances based on our literature review.

4- Technological alliance in CoPS

4-1- Alliances in CoPS

Perhaps the most salient image of CoPS is that many organizations working together. (Hobday M. , Product complexity, innovation and industrial organization, 1998). CoPS are often produced within projects which incorporate prime contractors, systems integrators, users, buyers, other suppliers and sometimes government agencies and regulators (Hobday M. , The project-based organisation: an ideal form for managing complex products and systems?, 2000) in which highly sophisticated systems integration are essential to production. (Research-Policy, 2000)

According to the mentioned characteristics of CoPS, these projects are typically embedded within production networks where alliances are formally developed to structure and coordinate innovative COPs (Hobday M. , Product complexity, innovation and industrial organization, 1998). They are often produced in multi-firm alliances, as a one-off or in small customized batches for specific customers and markets. (Prencipe & Fredrik, 2001)

4-2- Specifications of technological alliance in CoPS As mentioned in section 2-1-2 CoPS has special characteristics. These characteristics

could influence technological alliances. In this step we identified characteristics that have the greatest influence on CoPS alliance. These include:

1. Complex component interface 2. High unit cost 3. Many skill/knowledge inputs 4. People embedded knowledge 5. Management of multi firm alliance in temporary projects 6. Long term stability at integrator level 7. Negotiated price

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8. Highly flexible 9. System integration 10. Innovative organizational structures 11. Uncertain and changing user requirements 12. Innovation complexity

5- Critical Success Factors for technological alliance in CoPS 5-1- Impact of CoPS characteristics on Critical Success Factor

For identifying technological alliance CSFs that contribute in CoPS alliance success, we prepare a table(table 3) with left hand column indicating CoPS characteristics and first row indicating CSF of technological alliances. Then we marked with the star each CSF that is relevant to each CoPS characteristic. The next phases of this research will be gathering the expert judgments for ranking these CSFs based on relating one CSF to one of COPs characteristics. The sum of stars in each column indicates the importance of each CSF on COPs alliance. We did it by gathering the opinions of 3 experts (see table 3)

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Table 3. technological alliance CSFs that contribute in CoPS alliance success

Trust

Top management support

communication

Complementary resources

Alliance management capability

Precise definition of rights and duties

Learning climate

Partnering experience

Complex component interface

High unit cost

Many skill/knowledge inputs

People embedded knowledge

Management of multi firm alliance in temporary projects

Long term stability at integrator level

Negotiated price

Highly flexible

System integration

Innovative organizational structures

Uncertain and changing user requirements

Innovation complexity

5-2- Critical Success Factors based upon CoPS characteristics In previous sections we identified 8 Critical Success Factors for Technological Alliances

based on literature review. These Critical Success Factors are as below:

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5-2-1- Trust:

Trust must exist in an alliance since each party depends on the other to satisfy mutual goals. Trust must be present for partners to share critical information to manage the alliance and for each partner to believe its long-term needs will be met. (Whipple & Frankel, summer2000)

Technology transfer and knowledge sharing will not achieve without reciprocal trust and a lack of trust is often cited as contributing to alliance failure. Inter-firm trust in CoPS, which is built through prior alliance relations, encourages alliance partners to share their proprietary technologies for joint invention. (Kim & Song, 2007) Sadowski postulated that poor trust and goodwill creation is the origin of most reasons for alliance failure. (Sadowski & Duysters, 2008) (Daellenbach & Davenport, 2004) Trust and trustworthiness in inter-organizational and inter-personal forms need to be cared and fortified based on fairness in technology alliance of CoPS. Arguably, the higher levels of trust led to measurable financial savings, as well as promoting innovative thinking. (Barlow, 2000) As a result trust should be considered as a critical success factor or CoPS technological alliane

5-2-2- Top Management Support:

Senior management support provides both encouragement and resources (e.g., personnel, time, travel, technology, physical plant) to individuals directly involved in alliance activity. (Whipple & Frankel, summer2000)

Some of COPs characteristics that shown top management support as an important CSF are: the high rate of costs, Long term stability at integrator level, Innovative organizational structures, highly flexible and Management of multi firm alliance in temporary projects. Top management commitment plays a crucial role in CoPS technological alliance success.

Top management should also produce financial support and suitable atmosphere for effective communication and configuration in CoPS technological alliances. As a result Top management support also impact on other CSFs such as communication, alliance management capability, learning climate.

5-2-3- Communication:

About 52 % of unintended termination reason of technological alliances is the problems related to communication within the alliance. (Sadowski & Duysters, 2008) Communication has been found to be one of the most important, conditions for success in technology transfer as a main component of CoPS technological alliance. (Kremic, 2003) Especially in CoPS that so many teams and firms work together in technological alliance, it is necessary to have appropriate communication plan and use suitable communication tools and techniques for implementing effective communication management.

5-2-4- Complementary Resources:

Resource-based theory emphasizes the importance of firm resources, which are defined as “any tangible or intangible entity available to the firm that enables it to produce efficiently and/or effectively a market offering that has value for some market segment(s)”.The fundamental thesis of the resource-based view is that, because resources are significantly heterogeneous across firms, each firm's resource set is in some ways unique. Furthermore, because some resources are not easily bought, sold, and/or traded in the marketplace (i.e., they are imperfectly mobile), resource heterogeneity among rivals can persist over time and explain performance diversity Firms have a variety of ways in which to gain access to resources, including (a) developing them (either unilaterally or with the help of other firms), (b) acquiring them (e.g., through mergers and acquisitions), and (c) gaining access to them (e.g., through business alliances and partnerships. As to business alliances, resource-based researchers maintain that alliance success is influenced significantly by (α) the resources that each partner contributes to an alliance and (β) the extent to which the alliance creates new resources. In short, alliance strategy “is about creating the most value out of one's existing resources and by combining these with others'

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resources. However, it is rare that all of a partner's resources are essential for superior alliance performance. The resources of alliance partners may be “overlapping” (i.e., common to both partners) or “nonoverlapping” (i.e., unique to a given partner).Overlapping resources can be either useful to an alliance (“supplementary” resources) or not useful (“surplus”). Similarly, nonoverlapping resources can be either useful to an alliance (“complementary” resources) or not useful (“wasteful”). Although supplementary resources benefit alliances, research suggests that complementary resources are especially important to alliance (Wittmann, Hunt, & Arnett)

CoPS characteristics such as “many knowledge/skills inputs” enhance the need for complementary resources.

5-2-5- Alliance management capability:

Companies may implement a variety of management techniques to manage their alliances named as Alliance management capabilities. Research showed that Quality of alliance management is a key success factor (DE MAN, 2005). Broadly Alliance management capabilities can be categorized into four groups. First there are alliance functions. Some companies have alliance vice-presidents, running an alliance office. Most companies have dedicated alliance managers, responsible for managing one or more alliances.

A second group of techniques are alliance management tools. They include standardized procedures for alliances, like checklists for partner selection, alliance evaluation tools or alliance databases.

The third group of alliance management techniques is alliance management processes. The way alliances are factored into the planning and control cycle, for example by specifying rewards and bonuses for good alliance management, is an example of such a process.

The fourth element in building up an alliance capability is hiring outside help. By using experts like consultants, companies may implement new alliance management techniques faster and better than when trying to do everything themselves. (DE MAN, 2005)

Complexity in management of CoPS requires that such capabilities be strengthen within companies that use CoPS alliances. For example the need to managing multi firm requires special structure and procedures are in place.

5-2-6- Precise definition of rights and duties:

Precise definition of rights and duties include two related factors: 1. Clear goals 2. Partnering agreement Clear goals- Success in an alliance depends on the partners having common vision of the future Alliance success requires the establishment and execution of clearly defined goals (Whipple & Frankel, summer2000).

Partnering agreement: partnering agreement that contains the common goals to attain (Cheng & Li, OCTOBER 2002).

Precise definition of rights and duties- According to transaction-cost theory, the success of an alliance essentially depends on whether it can be configured to minimize behavioural uncertainty and the resulting need for control. If, on the other hand, behavioural uncertainty is high, this increases control costs, reducing the efficiency of the alliance. Frequent disputes about input in the co-operation (duties) and sharing the output (rights) cause high costs for conflict resolution. This hinders possible benefits from the co-operation. Accordingly, potential conflicts should be avoided from the outset by establishing precise targets and task definitions. (Hoffmann & Schlosser, 2001)

Although there is uncertainty about the result of cooperative activities, partners can specify the conditions under which they will share the rights over technologies generated in the alliance by means of contracts. (Lerner & Merges, 1998) For the sake of surmounting CoPS technological alliance uncertainties and for increasing mutual trust between partners

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the rights and duties have to be defined precisely. The benefits and license that are related to intellectual properties should be defined and every persons and systems components duty needs to be identified.

5-2-7- Learning climate

Innovation complexity involved in CoPS requires the learning climate that facilitates innovative practices.

5-2-8- Partnering experience:

It is well known that companies with more experience of alliances tend to be more successful than companies with limited alliance experience (McCutchen Jr, Swamidass, & Teng, 2008).

According to the inherent characteristics of CoPS in complexity and uncertainties partner's experience can be good point for relying on and will increase the success probability.

6- Future research directions

The next phases of this research will be gathering the expert judgments for ranking these CSFs based on relating each CSF to each of COPs characteristics.

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